Are the voices of customers louder when they are seen? Evidence from CFPB complaints

Abstract

This paper exploits a unique policy change in the banking sector – the first disclosure of the customer complaints submitted to the Consumer Financial Protection Bureau (CFPB) – to examine whether regulatory scrutiny represents one mechanism through which the disclosure of customer complaints can affect bank behavior. I find that banks with a higher complaint volume on the disclosure date increase mortgage approval rates relative to banks with fewer complaints in the same county, and that this effect is strongest in financially underserved communities. I further find that the disclosure effect is larger for banks under more regulatory scrutiny, namely, those operating in states with stronger consumer financial protection enforcement and those with prior consumer affairs violations. Taken together, the results suggest that the public disclosure of customer complaints, especially when accompanied by regulatory pressure, can serve as a mechanism for customers to influence banks’ consumer lending behavior.